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Network Rail keeps profits on track but misses efficiency target

The UK's rail infrastructure firm made a £1.56bn profit last year - but missed a vital efficiency target.

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Published: 03 Jun 2009

Last Updated: 31 Aug 2010

The profit figure was only slightly down on last year’s £1.6bn - not bad given the recession. And under Network Rail’s rather unusual corporate structure – it’s limited by government guarantee and has no shareholders – all the profits are reinvested in the network.

Punctuality also hit a new high, with 90.6% of trains arriving on time, the best performance since 1992. Although critics - of whom Network Rail has more than its fair share – point out that to be officially ‘on time’, trains can be up to five minutes late on commuter routes and 10 minutes late on long distance runs.

By and large though it seems like a pretty decent performance - certainly a big improvement on the dark days of Railtrack, under whose regime punctuality (even by the same generous measure) fell to a disastrous 78%. It also makes it even more surprising that boss Iain Coucher decided to forego that £400,000 bonus a few weeks back.

But as usual when talking about Britain’s rail system, things are not quite as straightforward as they first appear. For starters, the firm has missed one of its key five-year money saving targets, reducing its costs per unit of work done by only 27% instead of the 31% it was aiming for – an overspend of around £1bn. Apparently it’s all down to problems with their track replacement programme. Whatever the cause, it’s an embarrassing miss for NR, not least because it will refocus attention on the question of executive bonuses once again, just when they were hoping that Coucher’s magnanimity had put all that to bed.

To make matters worse, net debt has also risen sharply, up to £22.2bn from £19.7bn last year (although the firm claims that gearing remains the same at 70%). And like so many other big employers, its pension deficit is up too – by a hefty 80%.

Even those solid profits aren’t quite the unalloyed good news that they seem. Given that the lion’s share of NR’s funding comes straight from the taxpayer, and that all profits are re-invested anyway, there’s doesn’t appear to be much advantage to either the Treasury, the train operators or even to the fare-paying public in NR making a profit in the first place. Although of course healthy profits don't do any harm when it comes to deciding senior exec bonuses, which they can they then refuse to accept. Is your head hurting yet? Welcome to the surreal world of rail financing...

On the subject of profit-and-loss in the transport business, a fine row is brewing between those old rivals Virgin Atlantic and British Airways. In a remarkably well-timed announcement last week, Virgin Atlantic posted a £68.4m profit for 2008 only one day after BA posted its shock £400m loss. Now BA is fighting back, and has wheeled out no less a big gun than CFO Keith Williams, who gives the Virgin accounts a good going over in the latest BA staff newsletter. The claimed profit, he says, is all down to a predicted gain from the strength of the dollar, which may or may not actually occur.

We are sure that Virgin would disagree with this not-exactly-impartial observation, but you must admit it is all good knock about stuff that is hardly likely to improve the already-fraught relationship between the two firms. Over to you, Sir Richard.